Public Pressure and Corporate Tax Behavior
Jeffrey L. Hoopes
University of North Carolina (UNC) at Chapel Hill
Jaron H. Wilde
University of Iowa - Henry B. Tippie College of Business
November 19, 2015
Fisher College of Business Working Paper No. 2014-02-003
We use a shock to the public scrutiny of firm subsidiary locations to investigate whether that scrutiny leads to changes in firms’ disclosure and corporate tax avoidance behavior. ActionAid International, a non-profit activist group, levied public pressure on noncompliant U.K. firms in the FTSE 100 to comply with a rule requiring U.K. firms to disclose the location of all of their subsidiaries. We use this setting to examine whether the public pressure led scrutinized firms to increase their subsidiary disclosure, decrease tax avoidance, and reduce the use of subsidiaries in tax haven countries compared to other firms in the FTSE 100 not affected by the public pressure. The evidence suggests that the public scrutiny sufficiently changed the costs and benefits of tax avoidance such that tax expense increased for scrutinized firms. The results suggest that public pressure from outside activist groups can exert a significant influence on the behavior of large publicly-traded firms. Our findings extend prior research that has had little success documenting an empirical relation between public scrutiny of tax avoidance and firm behavior.
Number of Pages in PDF File: 52
Keywords: Public pressure, tax avoidance, reputation costs, disclosure, tax havens
JEL Classification: H25, H26, H20, G39
Date posted: August 1, 2014 ; Last revised: November 24, 2015
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